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mark t: Hey everyone, this
is Mark Treichel with another

episode of With Flying Colors.

For parts of December particularly
around the holidays, I'm going to

be doing some short topic podcasts.

And it just so happens that I saw
A-N-C-U-A express that just came out

that I wanted to do a short podcast on
in light of some other things that are

going on in the credit union world.

So here it is.

And the NCUA express.

By the way, if you do not subscribe to
NCUA Express, it's a good thing to do.

Whenever they publish anything of any
materiality, you get an email that

alerts you to it, you can ignore it,
or it might be something of interest.

And this NCOA Express says NCOA's
Fintech Director testifies before

the Subcommittee on Digital Assets,
Financial Technology, and Inclusion.

And I'm recording this on December 5th.

He testified on December 5th and
he is Charles Weiss, the Director

of Financial Technology and Access.

Now, I will put in the show links
a link to his entire testimony.

But what I wanted to point out was his
reference to third party vendor authority.

NCOA has been looking to regain
third party vendor authority

since its sunset around Y2K.

The trade groups, NAFCU and CUNA, were
very good at getting that sunset language

in, so that NCOA only had that authority.

during Y2K.

Now, the board, since then, and
particularly the current board, Chairman

Harper, is very passionate about
regaining third party vendor authority.

I've made comments in the past
that be careful what you ask for.

You don't want to be the dog chasing
the ice cream truck and then you

get it and you have to figure
out what it is that you're going

to do with that ice cream truck.

When you get it, but while that's still
an issue I think things are going to

heat up on this arena and I think NCUA is
Appropriately going to be heating things

up in this arena and I'll explain why here
in a minute All right So the testimony

says third party vendor authority in
the context of financial innovation

and technology the NCUA needs the
NCUA's need for supervisory examination

authority over credit union service
organizations and third party vendors is

a noteworthy vulnerability for the system.

Other independent entities, including
the Government Accountability Office, the

Financial Stability Oversight Council, and
the NCOA's Office of Inspector General,

have identified this deficiency as
inhibiting the NCOA from fulfilling its

mission to safeguard credit union members.

And it is the NCOA Board's
continuing policy to seek third

party vendor authority from Congress.

Credit unions increasingly partner
with third party vendors to enhance

their products and services, make their
programs cost effective, provide access to

expertise, and promote programs that may
not be feasible if provided independently.

The pandemic has already accelerated
the industry's shift to digital

services, which has increased the
industry's reliance on such vendors.

However, unlike the other federal
banking regulator agencies,

regulatory agencies, the NCOA does
not have supervisory authority over

third party vendors or providers,
leading to a regulatory blind spot.

This lack of oversight puts federally
insured credit unions at a competitive

disadvantage compared to insured
banks and members of credit unions

at greater risk of a significant
breach or technology disruption.

As cyber criminals Foreign adversaries
and money launderers increasingly

target third party service providers to
exploit vulnerabilities across the U.

S.

critical infrastructure sectors.

There is more exposure to the credit
union industry if the NCOA does not

have visibility into these providers.

If Congress reauthorized third party
vendor authority for the NCOA, the agency

will adopt a program that prioritizes
examinations based on the risks related

So the National Credit Union Share
Insurance Fund, safety and soundness,

cyber security, consumer financial
protection, and the Bank Secrecy Act

slash anti money, the Bank Secrecy
Act anti money laundering compliance.

This statutory change would give credit
union members the same protection as

bank customers, resulting in improved
customer service and enhanced protection.

Further, the potential benefit of
vendor authority Include credit union

access to NCOA exam information when
conducting due diligence of vendors.

Fewer requests from the NCOA to credit
unions to intervene with vendors

experiencing problems and fewer
losses to the share insurance fund.

All right, so why is that
increasing in likelihood right now?

If you've been watching the press at all,
you are aware that there was a malware

attack that is impacting Somewhere
north of 50 credit unions and that's

getting a lot of play by the trades.

It's getting a lot of play on
LinkedIn, and it's could be very

likely that when the dust settles
from that, that we will see that NCUA

puts cybersecurity as number one in
their priority letter that comes out.

Remember, it comes out about mid January.

I'll be reporting on it here, giving
you guidance and my thoughts and my

team's thoughts relative to it here.

But in any event, all the board
members talk about cybersecurity,

keeping them up at night.

Potentially we're going to
have a new board member as

soon as this month, I've heard.

Tanya Otsuka could get nominated
soon, the word on the street is.

And I would anticipate with her
connections to Sherrod Brown.

That could give N.

C.

U.

A.

the political juice it would
need to get this change to

the Federal Credit Union Act.

Now, I mentioned earlier the
trades have fought against it.

This could be the first battle that
America's credit unions has to take on.

A battle which is getting harder and
harder to defend and particularly, I

was listening to another podcast about.

The challenges of AI and how that is
creating some issues in in banking

where people are losing their money
because their voice has been copied.

Something that that some of my
relatives have asked me about, Hey,

with your podcast out there, you've
got a lot of your words out there.

Could that could that
lead to an AI situation?

So I'm going to be increasing my
cybersecurity on my personal accounts.

And I have learned quite a bit in that
arena personally, while I don't have

any experts on information system.

systems as part of my team.

And Cua has built a robust cadre of that.

And you can expect that whatever comes
out of this malware attack that in Cua

is going to have some lessons learned
from it and lessons learned is going

to lead to examination steps, it's
going to lead to, in my opinion, as I

mentioned, the priority letter having
cybersecurity number one, as opposed

to number two, three, four, or five.

And that really doesn't matter other
than the fact that it does set the tone.

I'm going to predict that you'll see
at GAC or whatever they're calling it,

I still think they're calling it GAC.

Chairman Harper will talk
about this in his speech.

And he's got the political connections.

He knows how to work Congress.

He did that.

For Senator Sarbanes, and now he's
soon going to be matched with Tanya

Otsuka, and I don't even see how
Kyle Hauptman would want to stand

in the way of this at this juncture.

Especially, again, with AI and
the challenges from that looming.

All right, that's it.

This was a short take.

If you have any ideas on little topics
like this you might want me to cover,

shoot me a note on LinkedIn or on
my email at info at marktreichel.

com.

Thanks for listening.

As always, Mark Treichel
signing off with flying colors.

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